In a blog post, Launtel chief executive Damian Ivereigh said NBN Co's CVC pricing construct was the factor that had led to the company reconsidering its offering of this service. "It is extremely expensive to offer these services for a relatively small number of people and we are very disappointed to say that it looks like we will just have to stop offering it," he added.
Ivereigh pointed out that to support 250/100 services, he had to buy about 750Mbps of CVC, an extra 450Mbps above what the NBN Co offered free to get past the scaling issues.
This meant an extra $3600 each month over what was needed for the 100/40Mbps service. "We don’t actually buy that much, [we buy] about 600Mbps and unfortunately we are seeing some occasional congestion when two people on 250Mbps service fire up at the same time, during peak times," he explained.
ISPs have to pay two kinds of charges to NBN Co. The AVC is a single price per connection based on the peak speed of that connection which means that higher speeds would cost more.
The second charge is for CVC – the total bandwidth that an ISP requests to use across all its services in an area. It is called a CSA which is just a point of interconnect.
"In Canberra there are two CSAs: Civic and Queanbeyan," Ivereigh said. "If an RSP does not purchase enough CVC then the result is congestion at peak times as there isn’t enough bandwidth to go around. NBN Co and the RSPs assume that a certain amount of CVC, typically just a few Mbps, is used on average per connection. So for example if 2.5Mbps of CVC is allocated per connection, then if you have 1000 services, then your CVC should be 2500Mbps."
He said the issue with this calculation was that it did not scale down. "You have to have a minimum amount of CVC just to allow a service to work at all. Clearly, you have have at least 100Mbps of CVC just to allow a single connection to peak at 100Mbps. However when you have two, you probably need 200Mbps so they can both operate at the same time. However when you get more, you can start going back to the old formula. The received wisdom is that you need about three times the highest speed of your services as a minimum on your CVC."
Ivereigh said NBN Co had recognised this scaling issue and allowed an RSP to get a minimum of 300Mbps of CVC effectively free to get past this, a gesture that was clearly aimed at supporting 100Mbps services.
"Great what about higher speed ones? Unfortunately, NBN Co has done nothing to help. If RSPs want to sell 250Mbps and above, they need to buy more CVC, at $8/Mbps/month," he said. "The problem is that all that extra CVC is really just to support the higher speed services and it gets really expensive per service."
He said Launtel was able to keep offering the 250/100 service in Tasmania because it had gone past the scale issue. "We have about 10 times the number of connections in Tasmania that we have in Canberra, plus we set up our gigabit network in Tasmania mainly for businesses, whose CVC capacity we can use at night!"
Regarding the NSW connections, Ivereigh said the problem was that as the price got higher, less people wanted to buy it. "But the CVC cost is the same, just spread over fewer people, making our cost per service higher. A vicious cycle," he added.
"To make matters worse our daily pricing works against us – people, quite reasonably, will just upgrade for the day just for some big downloads. The problem is we have to keep (i.e. buy) the bandwidth on hand regardless."